IDFC First Financial institution shares slip over 5% after Q3 earnings miss estimates; analysts slash goal value

Inventory market at this time: Shares of IDFC First Financial institution, shaped by merging the banking arm of mission financer Infrastructure Improvement Finance Firm (IDFC) and Capital First, tumbled 5.4% in early morning commerce on Monday, January 27, to ₹58.90 apiece after the financial institution’s Q3FY25 numbers, launched on Saturday, missed analyst estimates.

The financial institution reported a pointy 53% drop in standalone internet revenue to ₹339.4 crore, considerably decrease than the analyst projection of ₹551 crore. The decline in internet revenue was attributed to elevated opex and elevated provisions. Credit score prices and slippages remained excessive because of stress within the microfinance (MFI) portfolio.

Sequentially, internet revenue grew by 69% from ₹201 crore within the previous September quarter of FY25. Nonetheless, for the primary 9 months of FY25, internet revenue declined by 45.3% year-on-year (YoY).

The financial institution acknowledged that its profitability was impacted by decreased revenue from a slowdown in microfinance (MF) mortgage disbursals, elevated microfinance provisions, and the normalisation of credit score prices in non-MF companies.

The microfinance portfolio, as a proportion of the general mortgage e-book, declined from 5.6% in Q2FY25 to 4.8% in Q3FY25. Complete provisions, excluding tax, doubled to ₹1,338 crore from ₹655 crore in the identical quarter final yr.

Internet curiosity revenue (NII)—the distinction between curiosity earned and paid—rose 14.4% to ₹4,902 crore, in comparison with ₹4,286.6 crore within the year-ago quarter. Complete revenue elevated to ₹11,123 crore throughout the quarter, up from ₹9,396 crore in the identical interval final yr.

On the advances and deposits entrance, the financial institution reported wholesome development. Internet advances expanded by 20% YoY, pushed by a 21.3% YoY enhance in retail, rural, and MSME loans. On the deposit entrance, buyer deposits grew by roughly 30% YoY, with retail deposits contributing 80%, guaranteeing a secure funding base. CASA deposits noticed a 32.3% YoY development, sustaining a powerful CASA ratio of 47.7%.

Analyst lower EPS estimates

Home brokerage agency Centrum Broking highlighted that the financial institution has proven robust efficiency by way of advances and deposits, outperforming friends in attracting and retaining low-cost deposits.

Nonetheless, it stated the financial institution continues to face key challenges, together with greater working bills and elevated credit score prices, which it expects to enhance solely by FY27 and past. Regardless of this, the financial institution’s bold Return on Fairness (RoE) targets stay out of attain, with Q3FY25 marking one other setback.

Quarterly RoE, which peaked at over 13% in Q4FY23, dropped to three.6% in Q3FY25. This implies that FY25 RoE will fall wanting the already subdued FY24 ranges. Consequently, Centrum Broking has marginally lowered its FY25 estimates and now expects the financial institution to attain RoE above its value of fairness solely by FY27.

Given the weaker macroeconomic outlook and delays in attaining return targets, Centrum maintained a ‘Scale back’ score for the inventory and lowered the goal value to ₹58 from ₹61 ‘earlier. 

Equally, Motilal Oswal decreased its goal value on the inventory to ₹70, retaining its ‘Impartial’ score on the inventory. The brokerage trimmed its earnings estimates by 26% and 10% for FY25E and FY26E, respectively, citing greater working bills. It initiatives FY26 RoA and RoE at 0.8% and eight.1%. 

Nuvama Institutional Equities additionally sharply lower its EPS estimates for FY25E and FY26E by 22% and 27%, respectively, factoring in greater credit score prices and working bills for FY25E, together with slower income development and elevated credit score prices for FY26E. The agency has maintained a ‘Maintain’ score with a goal value of ₹60 apiece. 

Disclaimer: The views and suggestions given on this article are these of particular person analysts. These don’t characterize the views of Mint. We advise buyers to examine with licensed consultants earlier than taking any funding selections.